The Hong Kong courts have the power to grant interim relief in Hong Kong in aid of arbitral or court proceedings commenced in a foreign jurisdiction. Such interim relief is designed to preserve assets or prevent misuse or disclosure of confidential information pending the outcome of the foreign proceedings and may be granted even where those proceedings have not yet been commenced. However, this would normally be subject to the plaintiff undertaking to issue and issuing proceedings in a timely manner.
In the recent case of VE Global UK Limited v Charles Allard Jr and Intelita Limited [2017] HKEC 2135, the Hong Kong Court of First Instance (the “Court“) granted and continued an injunction restraining the Defendants from using intellectual property owned by the Plaintiff, despite the Plaintiff not providing an undertaking to the Court and a 2-month delay by the Plaintiff in commencing substantive proceedings in the foreign jurisdiction.
1. Background
The Plaintiff was the assignee of the business and assets of VE Interactive Ltd (“VE Interactive“), the ultimate holding company of a group of companies (“VE Group“). VE Interactive’s business comprised developing and providing sales and marketing software for online businesses and online advertising services (“VE Business“).
The 1st Defendant, Mr. Allard, managed the VE Business in Asia and held a minority shareholding in the Asian subsidiaries of the VE Group through his corporate vehicle, Intelita Ltd (“Intelita“), the 2nd Defendant.
VE Interactive and Intelita jointly owned VE Interactive Asia Ltd (“VE Asia“), a Hong Kong based subsidiary of the VE Group. VE Interactive and Intelita entered into a licence agreement (the “Licence”) for the establishment/operation of various Asian subsidiaries and the licensing of various rights to Intelita for the operation of the VE Business in Asia. VE Interactive subsequently assigned its rights in the Licence to the Plaintiff. The Licence contained an arbitration clause stipulating ICC Arbitration in England.
The Plaintiff suspected that the 1st Defendant had set up a rival business in Hong Kong, and was using Intelita to obtain confidential information from the VE Business and was transferring that information to the rival business. Following investigations that confirmed the Plaintiff’s suspicions, the Plaintiff served notice terminating the Licence on 25 July 2017. On 28 July 2017, to stop the misuse of its confidential information, the Plaintiff obtained an ex parte injunction against Mr. Allard and Intelita (the “Defendants“), which was continued at the inter partes hearing on 4 August 2017 on modified terms (the “Injunction“).
The Injunction essentially restrained the Defendants from a) operating VE Asia and the other Asian subsidiaries (the “VE Companies“); b) holding Intelita out as being related to the Plaintiff or VE Interactive (together “VE“); c) using the intellectual property of VE and/or the Business (defined in the Injunction as ‘offering the products and services of VE as advertised on www.veienteractive.com“); and d) using or copying the software, hardware, materials and documentation relating to the Business whether registered or purchased in the name of the VE Companies or Intelita. On the evidence available, there was a serious question to be tried that Intelita was in breach of its obligations under the Licence.
The Plaintiff did not commence arbitration proceedings in England, pursuant to the Licence, against the 2nd Defendant or court proceedings against the 1st Defendant (who was not a party to the Licence) until 21 September 2017. The Plaintiff explained the 2-month delay by saying the 1st Defendant had indicated that he would not be challenging the termination of the Licence and would be cooperating to comply with all post-termination obligations, such that it might not be necessary to commence proceedings.
2. Issues
At the adjourned hearing to continue the Injunction, the Defendants resisted the application and argued, amongst other things, that:
(1) the Plaintiff’s delay in commencing the substantive proceedings constituted an abuse of process so the Injunction should be discharged; and
(2) alternatively, the Injunction should be varied to permit the Defendants to continue to operate various software licences and accounts with third parties (the “TP Accounts“) (which were service-providers providing accounting, HR and other services[1] to the VE Group) held in the name of Intelita.
3. Decision
Delay
The Court refused to discharge the injunction based on the delay. In coming to a decision, the Court considered:
- the length of the delay;
- the explanation put forward for the delay;
- the degree of prejudice liable to be caused to the Defendants as a result of the delay;
- the prejudice liable to be caused to the Plaintiff if the injunction is to be discharged; and
- whether the Defendants had in any way caused or contributed to the delay.
Although the Court considered that it was imperative for the Plaintiff to “act with diligence and speed [in initiating] the primary proceedings for which the interim relief was granted in support” and that the delay was regrettable, it was not satisfied that the Defendants suffered any prejudice as a result of the delay.
Protection of Confidential Information
The Court also refused to vary the Injunction to permit the Defendants to continue operating various software licences and TP Accounts. In coming to its decision, the Court took account of the following factors:
- The Defendants had not established that they had been operating any business independently of the VE Business and that such business would suffer prejudice if the Defendants were not granted access to the TP Accounts.
- The Plaintiff would suffer irreparable damage if it could not access VE’s client information stored in the TP Accounts, or if Intelita were allowed to gain access to confidential information belonging to the VE Business stored in the TP Accounts.
Balancing the risk of injustice that might be caused by granting or refusing the interim relief, the Court continued the Injunction to prevent the Defendants from further using and gaining access to the TP Accounts in Intelita’s name, and the confidential information contained therein.
4. What This Means For You
Injunctions in aid of foreign proceedings are normally only granted subject to a plaintiff’s express undertaking to commence proceedings in the foreign jurisdiction as soon as practicable. If such undertaking is not given, absent a compelling explanation, the Court is unlikely to grant an injunction. A delay in issuing substantive proceedings will not only be a breach of the express undertaking to the Court, but may also lead to a discharge of the injunction.
Although the Court in the VE Global case did not discharge the Injunction, applicants for interim relief in aid of arbitral or court proceedings are reminded to act with diligence and speed in initiating substantive proceedings, as the Court has discretion to discharge an injunction on the grounds of delay and will balance the risks of injustice or prejudice caused to the parties in considering whether to grant or refused an injunction.
If delay is inevitable, it is essential to be in a position to explain the reasons for the delay to the Court and to show that the defendant is not prejudiced by the delay.
[1] Such as accounting and finance system, foreign exchange account system or online advertising space on websites.
